ITV forecasts returns to growth: Time to hang out the flags?

Perhaps we’ll look back on this week as pivotal. Last Friday, Sir Martin Sorrell attacked those who talk up ad markets on the basis of slowing revenue declines. Following his lead, I suggested yesterday that we’re not out of the woods yet.

This morning, ITV announced a forecast 4% YOY growth in ad revenues during December. The last time ITV witnessed ad revenue growth was June 2008, three months before the collapse of Lehman Brothers.

Time to hang out the flags? Perhaps. So far as I know, ITV is the first big, mainstream, media owner to forecast a return to growth. Its shares were up by 7% this morning.

There will be caveats. For 2009 as a whole, ad revenues will still decline by 12%. This morning, after digesting ITV’s news, Numis Securities nixed its prediction of a 5% decline in ad revenues next year. It replaced that forecast with the prediction that the broadcaster’s ad revenues would be flat during 2010.

Not everyone, it seems, is willing to take this announcement as a signal that recession is over. Quite rightly: 2010 could still have some nasty surprises in store.

Even so, when you reach the bottom of a mountain, the obvious reflex is to look behind you and ask what it would take to scale the same heights again.

For all the talk of ITV’s structural problems, its decline hasn’t been quite as deep as other media companies have witnessed. The company’s advertising revenue base peaked in 2005 at £1.6bn.

ITV plc: Net Advertising Revenue

2004: £1.59bn

2005: £1.63bn

2006: £1.49bn

2007: £1.49bn

2008: £1.43bn

Factor in that 12% decline for the current year, and ITV’s ad revenues should emerge at around £1.25bn during 2009.

To get back to 2005 levels, therefore, ITV will need to grow its advertising revenue base by 30%.

There will be those who say that this is impossible because of audience fragmentation, online competition and the Contract Rights Renewal. Equally, there will be those who say it doesn’t matter, that ITV should instead concentrate on selling its in-house programming overseas and developing online revenues.

But ITV hasn’t exactly excelled in either area in recent years. The revenues involved are relatively small.

Here, then, is a sobering thought to add to the cautious forecast issued by Numis Securities this morning.

If ITV continues to expand its ad revenues by 4% on a consistent basis, it will equal, or beat, its 2005 performance. . . at some point during 2016.



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